I’m getting caught up on reading while on April vacation. I just finished The Only Game in Town by Mohamed A. El-Erian.
The book is an exploration of central banks in the economy. The brilliant Mr. El-Erian sees a coming crisis. One that can be avoided, but we must take action to avoid it.
He lauds the Federal Reserve and The European Central Bank for taking decisive steps to stop the financial crisis of 2008. The central banks created liquidity and propped up the financial system and financial institutions. The central banks continued their work to heal the economies as countries entered the Great Recession and slowly crawled back out.
Mr. El-Erian points out that central banks have a very limited set of tools. Its up to the political leaders to use their broader set of tools to create and implement programs that will fix the lagging economies. If not, the crisis will come.
The Federal Reserve is keeping the key interest rates low to stimulate the economy. That is resulting in asset bubbles as investors and companies pile on cheap debt. It is hurting long term investors who are far to one side on the risk curve looking for safe returns.
With its limited set of tools, the Federal Reserve is not able to create inclusive growth. It’s not able to invest in infrastructure and education. It’s up to the political system. The political system is failing us. Congress went 5 years without passing a budget, one of its core duties.
The Only Game in Town is both hopeful and pessimistic at the same time. Its well worth your time to pick up a copy and read.